Author of “The Debt Trap” on the generational setbacks associated with student loans: NPR

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NPR’s Michel Martin chats with Wall Street Journal reporter Josh Mitchell about his new book, The Debt Trap: How Student Loans Became a National Disaster.



MICHEL MARTIN, ANIMATOR:

As students across the country return to school, we’ve heard a lot about the health dilemmas they and their parents face, but it turns out there’s another crisis students are facing. and families are facing that has existed for decades, affects millions of people for years after leaving school and somehow receives less attention. We are talking about student debt. Americans owe some $ 1.7 trillion in student loan debt, and it’s not just a frightening number. Our next guest, a reporter who has followed the issue for years, says it is a phenomenon that shapes everything from decisions about buying a home to starting a business to starting a business. time to get married.

In his new book, Wall Street Journal reporter Josh Mitchell tells how the programs meant to be a ticket to the middle class have become an anchor around the necks of millions of Americans. It’s titled “The Debt Trap: How Student Loans Became a National Disaster”. And Josh Mitchell is with us now to tell us more. Josh, thank you very much for being with us.

JOSH MITCHELL: Yeah, sure. Thank you.

MARTIN: Catastrophe is a pretty strong word. Why do you say that?

MITCHELL: If you look at the numbers, there are a lot of people struggling with their debt. Let’s take a look at the number of people who have defaulted on their loans. There are 8 million people, something around this point, who have defaulted on their student loans. It is not that far from the number of people who have lost their homes due to foreclosure in the housing crisis. If you look at the number of seniors whose social security checks have been seized in recent years, there are over a million people who have had their social security checks seized because they cannot pay their debt. student. And the government is seizing their checks, reducing their Social Security checks to collect some of that debt. And in many cases, parents will have this debt hanging over their heads, possibly for the rest of their lives.

MARTIN: So how did this happen? I mean, how did something that was supposed to bring people into the middle class become something that is actually that anchoring, not just on individuals, but really on our idea of ​​upward mobility? I mean, how did this happen?

MITCHELL: So there were several pivotal moments that I think led the university to become a commodity as opposed to a public good. One of them was when Lyndon Johnson was successful in pushing Congress to create the student loan program that we have now. In 1965, he relied on banks to make loans. And the reason was that, from an accounting point of view, if the government itself gave loans at the time, it would look really expensive and increase the deficit. And so to keep taxpayers from being hit, at least on paper, he said, let’s get the banks to give loans, and that will make the program really cheap – again, on paper.

And that’s really when higher education became a big profit center. The student loan program was designed to help people pay their tuition fees. But what I’m arguing is by bringing the banks into the process and then creating what I call this Frankenstein named Sallie Mae to help banks get money to lend to students by taking these steps , the college has really become closely linked with the bankers, Wall Street. And even the schools themselves had financial interests in going into debt, and in many cases, into debt that they could not repay.

MARTIN: Well, you paint a picture of a number of people who have been through this story. I mean, some were the first in their families to go to college. Some people, for example, recovered from personal setbacks and saw education as a way to change their lives for the better. Almost all of them have faced tens of thousands of dollars in debt, and they still haven’t gotten out of the woods. And the other thing about it, these stories that – it just seemed to escalate. He never seemed to get any smaller. So, you know, in your reporting for the book, was there one person in particular that stood out for you and that pretty much sums up what we’re talking about here?

MITCHELL: Of course. The main character in my book is a woman who was a secretary in the early 90s in a Pennsylvania law firm. And she was in her twenties. And she wanted to improve her lot in life. This was at a time when the demand for university workers and the wages of university workers were increasing, while the wages of blue collar workers were decreasing. And so there was an economic imperative for people like her to go to college, and she did. She went to school in front of the law firm where she worked. She wanted to be a psychologist. And the state in which she wanted to open a psychology practice required her to obtain a doctorate.

So, 10 years later, after completing her studies, she owes $ 120,000 in student debt. Now 25% of that amount was almost just interest. One of the things the government – Congress did in the 1990s was they started charging a lot more interest while students were in school and didn’t have the opportunity to start making payments. And so think about it. For four years, or if you study for six or eight years or in that case 10 years, interest accrues on these loans. And one of the reasons Congress started doing it is that it was using that interest to try, you know, to make its budget seem smaller. They used, in some cases, the interest to reduce the federal deficit.

So you have a woman who goes to college and college to try to live her dream of becoming a psychologist, but so much money that she was getting into debt was going to schools, it was going to pay the banks, y including Sallie Mae, who granted him the loans under the federal program. And it was used by Congress for its own budgetary purposes. So it became in her case and in a lot of other cases this wealth transfer where she takes all this debt, thinking it’s good debt, but in reality it enriches a lot of these great institutions. And she came out in 2001, and she could never get ahead of it. The monthly payment was so large that she had to sign up for a period of 30 years. And she was never able to pay off her debt. She eventually had to file for bankruptcy. Even after paying her initial balance and then some, she still had to file for bankruptcy because she just couldn’t afford it. It has become exhausting.

MARTIN: So what was it like writing this for you, if you don’t mind me asking? Because it’s just shocking that something that affects the lives of so many people is so little part of our public conversation. I just find it strange.

MITCHELL: Well, one of the most remarkable things I encountered with every person I spoke to was the level of shame they felt about having so much debt. They felt like they had done everything they were told to do by policy makers, by university leaders, by economists – go to college to improve your skills. And they sign the dotted line under the impression that they would get this high paying job and the debt would be an investment. And then all of a sudden they come out and they owe so much money. And they get really embarrassed and ashamed when they can’t pay it back.

So it was a very moving experience to talk to these people and their families. You know, one of the things that I haven’t mentioned so far is that a lot of people that I’ve talked to aren’t just them who have student debt, it’s their parents. And it really flips the script. You know, in the old days parents, you know, passed the wealth down. And of course, in a lot of cases, it still is. But more and more, what is happening is that the debt is being passed on to the top. Instead of passing the wealth on to your children, now the debt is passed on to the parents because a lot of parents, including low income parents, a lot of minority parents, have to go into debt just to give their parents a chance. kids go to college.

MARTIN: So before I let you go, you know, we talked here about the magnitude of the problem. And we’ve just scratched the surface of, you know, what you’re laying out in your book. But do you have any ideas based on your story on what would make a difference?

MITCHELL: Of course. I think history can be a guide here. One of the things I learned was that before the government got into the student loan program, a lot of the schools themselves, a lot of the colleges themselves were giving out student loans. They were the lender. And they would use some of their own money or, in some cases, work with banks to provide student loans. And the default rates at some of these colleges were very low. And so you might ask yourself why, you know, why are the default rates and the federal programs so high, but why were they low back then? There are probably several reasons for this.

But I think one of the main reasons is that when schools have more money at stake, they are less likely to indebt a student who will be too heavy to repay. In other words, if schools have more leverage in the game, if they have more consequences for such a high price increase, which makes it impossible for students to pay off their debt, schools will be less likely to do so. . So we thought – and I think members of both parties largely agree with this concept, or at least the people who have talked about how to reform this program – they agree with the concept that the Schools need more responsibility in this program if they are going to continue to have access to this huge source of money in order to prevent students from going into so much debt.

MARTIN: That’s Wall Street Journal reporter Josh Mitchell. His new book, “The Debt Trap: How Student Loans Became A National Catastrophe” is now available. Josh Mitchell, thank you very much for joining us.

MITCHELL: Of course. Thank you.

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